Dick Simkanin lights a cigarette, leans back in his chair behind the desk in his office, and casually speaks the words that could ruin his business and land himself and his employees in jail."We at Arrow Custom Plastics choose not to withhold any federal income taxes from our employees," he says.

Nor will he collect Social Security taxes from his employees' wages. A press release states that his nearly 50 employees "receive 100 percent of the fruits of their labor." All traces of his employees' Social Security numbers have been deleted from company files. His name is now a common sight on some anti-government fringe media outlets; he's regarded as a brave man. Simkanin's new tax policy has been in effect since the first of January and things are going fine.

For now.

As founder and chief executive officer of Arrow Custom Plastics, Simkanin has a lot of influence on the atmosphere of the place. A quick tour of the facilities reveals what could be the quintessential picture of the small American business -- workers in street clothes hefting supplies with forklifts, the oily smell of heavy plastic molding equipment, women hunched over machines that add holes or notches to bits of plastic. Those bits will ultimately be attached to the medical and technological devices of Arrow's clients. The business grosses $4 million annually.

Simkanin's office is a combination of corporate office, law library, conspiracy material archive, and aviation memorabilia museum. College degrees hang on the wall; Simkanin's a trained engineer. He's also an avid flier, having earned his license in 1975. Detailed paintings of glorified flights and violent encounters between Nazi and U.S. aircraft hang on the building walls. In one room of the 23,000-square-foot facility sits a partially constructed Lance Air IV, a project Simkanin hopes to finish by the end of the year.

It's just after noon and a handful of employees gather in the break room for lunch. On a table is a stack of Patriot movement booklets (Citizen's Rule Book -- A Palladium of Liberty) and a one-page flier on newsprint produced by the We the People Foundation for Constitutional Education. The flier describes the harrowing adventure of an Immigration and Naturalization Service officer who refused to pay taxes and was subsequently indicted by a federal prosecutor. Simkanin's unique touch pervades the atmosphere of the place. Now his defiant, legally dubious views may be putting his business and his employees in jeopardy.

"I am not a tax protester," Simkanin says. "I acknowledge that we must have taxes. I will pay all lawful taxes. The income tax is constitutional, but you and I are not made liable to pay it."

The brilliance of Simkanin's theory, as he sees it, is that he is within the law by not withholding taxes. He considers a W-4, the Internal Revenue Service's withholding form, an optional contract enforced by the IRS. The way Simkanin reads the tax code, he is not obliged to pay federal income taxes unless engaged in a taxable excise activity. (Excise activities, like distilling alcohol, are taxed specifically by name.) He also finds fault with tax code language that uses the terms "United States," "citizen," and "state." In his view, the United States refers to Washington, D.C.

"I'm just trying to follow the law, as written," he says. "I think people should be paid for the work they do."

You want him to get away with it. You want a loophole to exist, one so deep-rooted and fundamental that it would keep the government's mitts off your paycheck for good. You want Simkanin's plan to work.

But it won't.

The argument should have been dealt a deathblow by a 1984 case called Ficalora vs. Commissioner. In it, the Second Circuit Court of Appeals shot down the "income tax is voluntary" argument by saying that the federal tax code "provides in plain, clear and precise language that a tax is imposed on the taxable income of every individual."

Government tax agents say they can begin to file charges at any time.

"The employer is required to withhold taxes for income, Social Security and for Medicare," says Dallas-based IRS communications officer Phil Beasley. "When the employer stops and refuses to withhold, that's when the violation occurs. And when they're doing it willfully that's when the penalties are different."

By "different" Beasley means "possibly criminal," as in tax fraud. IRS penalties for willfully failing to file vary. Misdemeanor offenses have penalties of up to $25,000 in fines and one year in prison. Felony offenses are punishable by up to five years in prison and a $100,000 fine. With disturbing federal thoroughness, according to independent tax experts, the IRS has also drafted more than 150 different civil and criminal penalties to counter various actions and failures to file.

Even tax reformers and IRS critics say the code clearly states who needs to pay taxes, and when.

"There is no wiggle room here," says Pete Sepp, vice president of communications for the National Taxpayer's Union, a mainstream taxpayer's rights group. "These scams turn out to be no more than poison pills that divert attention away from the real abuses of the IRS and the burdens of the tax codes."

Randy Hageman hires some of the new employees at Arrow Custom Plastics, and it's his job to explain the company's unique approach to taxes. He knows how they feel; he heard about it three days before starting his job as plant engineer.

"At first I thought he was going to make us all contract labor. I had no interest in that," Hageman says. "I was told that wasn't the case."

Hageman's doubt turned into curiosity and trust. Simkanin is very up-front, even eager, to share the rationale behind his stance. Simkanin's research of the tax code and months of forethought and planning convinced Hageman; he took the job. He still harbors doubts, but in the end he trusts his boss.

"This wasn't an overnight decision," Hageman says. "I've learned a lot since I've been here...I have more direct exposure (to Simkanin) so I have a lot better feel for where he's at and what he's doing, and the integrity. He's not crazy. He stands up for what he believes."

Hageman knows that some of his co-workers are worried that trouble is coming, and that there are no guarantees that the IRS won't drop violations on the company or its employees. They know it's risky, but they are waiting to see what the authorities will do.

"There's nothing in black and white that says you don't have to pay income taxes, but no one can prove we have to, either," he says. The door opens and Simkanin comes in with sheets of paper -- an e-mail freshly printed.

"I just got this," Simkanin says, handing it over. The message is from a retired Air Force major who agrees that "there is no law that makes any American 'liable' or 'subject' to pay or file income tax." It's clear from a reading that it's typical conspiracy theory fare: godless globalists create the Federal Reserve Bank, which bleeds America dry, while our civil liberties are eroded by traitor politicians. The nation is bankrupt when interest on debts become unbearable, the economy collapses and the New World Order moves to make totalitarian peace, and is welcomed by a ruined and ruled population.

Hageman scans the paper for a couple of seconds and smiles. "When he constantly gives us stuff like that, it's reinforcement. As this goes across the country it's exciting. It's not just...in Bedford."

Not every employee is content to wait for the government's next move, or to put his or her faith in Simkanin. Cathy Daum has worked for Arrow Custom Plastics in quality control for more than 16 years, and she isn't as gung-ho about the boss' new policy.

"What he does with his personal life is his business. But he's forcing his opinion on the rest of the company," she says. "He made an announcement that we were no longer going to do it. I was irritated because it was being dumped on me, because I'm not going to not pay my taxes. It takes the burden off him, but for the individual it's a lot more aggravating."

Daum -- once a short-form filer -- now calculates all her federal taxes and pays her income taxes in quarterly installments. She has also calculated how much she must pay Social Security, an amount that was once paid to the government by Arrow Custom Plastics.

"Yeah, my paycheck's bigger, but I take home less," she says. "He seriously thinks he's doing us a favor. I just can't see it from that angle."

Indeed, Simkanin does not insist his employees keep their money; anyone's tax payments are their own business. An estimated one-half of the staff is not paying income or Social Security taxes. They too could face criminal charges.

"I would hate to see people think they don't have to do it or can get away with it and then get caught." Daum reflects for a second. "I never get away with anything. I always get caught."

An estimated dozen companies in the United States today have publicly renounced income taxes and refuse to withhold, but that figure comes from unsubstantiated Web sites and is hard to verify. Some of the tax protesters have claimed to receive money back from the IRS and others relish the fact that they have not yet been prosecuted.There's a clique within the anti-government or Patriot Movement that is promoting these tax-revolution schemes avidly. The clique -- of which Simkanin is now a member, or at least a poster child -- is networked through Internet sites and counter-media publications. They are not a secret group and do not operate with any veiled agenda. They hide in plain sight, shielded only by their own analysis of the law.

Simkanin delved into this world of loose historical and legal interpretation in 1994, when a friend told him of the IRS "loophole." Simkanin was captivated. He began his slow education into tax law, relying on the research of tax protesters who generate respect among the short-wave radio and Internet community. Simkanin became more involved, attended anti-government gatherings, and slowly considered the options.

In September he decided to ring in the new millennium by stopping all withholding of his employees' money. Simkanin distributed his arguments and backup materials to his staff. He even sent out a press release. To boost confidence, he brought in a sympathetic paralegal to give a voluntary educational class about tax law.

"My CPA was one of the first guys to jump ship," Simkanin says with a laugh. "I said, all I use you guys for is to pay taxes anyway, so that's no big loss."

The accountant was not alone; Simkanin says two employees quit when the new tax scheme was implemented.

The reaction from the fringe press was fairly quick. Media Bypass put him on the cover ("Company CEO obeys the law; Arrow Plastics stops IRS withholding -- no law requires it!") and he was invited to speak at the We the People gathering in Washington, D.C.

If the IRS drops the hammer on Arrow Custom Plastics, Simkanin says he will represent himself in court, with some well-known national tax protester attorneys serving as his counselors. His argument centers on the Constitution; any law that violates that supreme document is void, he says.

For him the fight is simple and, considering the likelihood of IRS filing criminal charges, ironic:

"If we don't follow laws we'll all end up as part of the New World Order and things will really go downhill."